Reckitt Benckiser Group (LON:RKT) Is Paying Out A Larger Dividend Than Last Year

Reckitt Benckiser Group plc (LON:RKT) has announced that it will be increasing its dividend from last year's comparable payment on the 24th of May to £1.16. This makes the dividend yield 4.3%, which is above the industry average.

See our latest analysis for Reckitt Benckiser Group

Reckitt Benckiser Group's Payment Has Solid Earnings Coverage

A big dividend yield for a few years doesn't mean much if it can't be sustained. Before this announcement, Reckitt Benckiser Group was paying out 84% of earnings, but a comparatively small 62% of free cash flows. Since the dividend is just paying out cash to shareholders, we care more about the cash payout ratio from which we can see plenty is being left over for reinvestment in the business.

Looking forward, earnings per share is forecast to rise by 65.7% over the next year. Under the assumption that the dividend will continue along recent trends, we think the payout ratio could be 52% which would be quite comfortable going to take the dividend forward.

Reckitt Benckiser Group Has A Solid Track Record

The company has been paying a dividend for a long time, and it has been quite stable which gives us confidence in the future dividend potential. Since 2014, the annual payment back then was £1.37, compared to the most recent full-year payment of £1.93. This works out to be a compound annual growth rate (CAGR) of approximately 3.5% a year over that time. Dividends have grown relatively slowly, which is not great, but some investors may value the relative consistency of the dividend.

Dividend Growth May Be Hard To Come By

The company's investors will be pleased to have been receiving dividend income for some time. Unfortunately things aren't as good as they seem. It's not great to see that Reckitt Benckiser Group's earnings per share has fallen at approximately 5.5% per year over the past five years. If the company is making less over time, it naturally follows that it will also have to pay out less in dividends. Earnings are forecast to grow over the next 12 months and if that happens we could still be a little bit cautious until it becomes a pattern.

In Summary

In summary, while it's always good to see the dividend being raised, we don't think Reckitt Benckiser Group's payments are rock solid. The company has been bring in plenty of cash to cover the dividend, but we don't necessarily think that makes it a great dividend stock. We don't think Reckitt Benckiser Group is a great stock to add to your portfolio if income is your focus.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For example, we've picked out 3 warning signs for Reckitt Benckiser Group that investors should know about before committing capital to this stock. Is Reckitt Benckiser Group not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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